In a statement released after a late-night meeting in Ramallah, headed by Mr Arafat, the Palestinian cabinet said that the armed conflict between Israel and the Palestinians could end within 24 hours if the intentions of the US and Europe are serious.

The statement, which followed overnight bombing by Israeli fighter planes in the Gaza Strip, called on all the Palestinian organisations to enforce a "comprehensive ceasefire and stop operations against Israel and Israelis", adding that the attacks "do not serve our national interests".

The Palestinian leadership also demanded that Israel let Mr Arafat leave Ramallah and withdraw its troops from Palestinian towns in order to reduce tensions and facilitate a lasting ceasefire. Israeli tanks are parked just 30 metres from Mr Arafat's offices in Ramallah.

Ghassan Khatib, of the Jerusalem Media and Communications Centre, said that it was impossible for the Palestinian leadership to secure a ceasefire while Israeli operations are continuing without any credible political initiative.

"It is not a matter of imposing ceasefire by force but a matter of creating the right atmosphere for it to stick. This is only possible if Israel take steps to stop the military blockade of towns and killing Palestinians.

"These people are not fighting for the sake of fighting. The ceasefire worked for a while but it was not consolidated because there was no political initiative and Israel renewed the assassinations."

The Americans are concerned that the Palestinian intifada could yet explode into a wider conflict, affecting American interests and regional stability at a time when the America is pursuing al-Qa'eda fighters and contemplating operations against Iraq.

The intermediary for the operation is said to have been Imad Mughniyah, a senior operative of the Lebanese Hizbollah, who is on America's list of most wanted terrorists and may have links to Osama bin Laden

Mr Arafat is being pulled in two directions, between appeasing Washington and his own more radical factions.

In the most serious rift between Washington and the Palestinian Authority since the signing of the Oslo accords in 1993, Mr Bush has discussed the possibility of closing the Palestinian representative offices in Washington and placing Mr Arafat's personal security force on the State Department's list of terrorist groups.

Mr Arafat fears for his personal authority if he launches a more severe clampdown on militant Palestinian groups and makes far-reaching arrests.

Many Palestinians have concluded that Ariel Sharon, Israel's prime minister, has no interest in peace and is reinforcing Israel's presence in the occupied territories.

Mr Arafat's inability, or unwillingness, to put a halt to the 16-month Palestinian uprising has even exasperated some of America's Arab allies.

The arms shipment, intercepted by Israeli commandos in the Red Sea, 300 miles south of Eilat, on January 3, was embarrassing to the Saudis and to the Egyptians because the smugglers were operating in Egyptian territory on a route that would have taken them through the Suez Canal.

The weapons on board the Karine A included 62 rockets with a range of 12.5 miles, hundreds of mortars and anti-tank weapons, mines, explosives, rifles and ammunition.